National Minimum Wage – How many penalty notices can HMRC issue?

A recent case that has gone through the tribunal system will provide further discomfort for employers who pay their employees below the National Minimum Wage (NMW) due to the tribunal upholding multiple penalty charges for the offences which straddle several periods.

Where an underpayment of NMW has occurred, in addition to the arrears due, HMRC will also charge a penalty for the underpayment. The penalty being calculated according to a percentage of the underpayments as detailed on the Notice of Underpayment (NOU) issued.

There are different percentages relating to the relevant pay reference period:-

For pay reference periods from 6 April 2009 up to 6 March 2014, the penalty is 50% of the underpayment on the notice with a minimum penalty of £100 and a maximum of £5,000 per notice

For the pay reference period 7 March 2014 to 25 May 2015, the penalty is 100% of the underpayment for all workers on the notice with a minimum penalty of £100 and a maximum of £20,000 per notice

For the pay reference period 26 May 2015 to 31 March 2016, the penalty is 100% of the underpayment for each worker on the notice with a minimum penalty of £100 per notice and a maximum of £20,000 per worker

For pay reference periods starting on or after 1 April 2016, the penalty is 200% of the underpayment for each worker, with a minimum charge of £100 per notice and a maximum charge of £20,000 per worker

Particular attention should be paid to the changes between those penalties due between 7 March 2014 to 25 May 2015 and those between 26 May 2015 to 31 March 2016. On face value there is little difference other than the maximum penalty position has changed from per notice to per worker. However, the impact can be significant, as recently highlighted in the Employment Tribunal case ‘Best Connection Group v HMRC’.

Following an HMRC investigation into the workers supplied by Best Connection Group, 13 notices of underpayments were issued, one notice covering the period up to 7 March 2014, 11 notices covering the period 7 March 2014 to 25 May 2015 and one notice covering the period after 25 May 2015.

Taking into account the penalty charging provisions for the relevant periods given the NOUs issued they were looking at maximum penalty capped to £5,000 for the first period, maximum penalty of up to £20,000 for the second period (for each separate notice) and maximum of up to £20,000 per worker on the notice for the third period.

In this particular instance the penalties totalled £263,628.69, a significant sum in addition to the underpayment identified. An appeal was lodged against the penalty notices with part of that appeal relating to whether HMRC can issue multiple notices and by doing so achieve a penalty greater than the £20,000 cap, had only one notice been issued.

The employment tribunal ruled that HMRC were able to issue multiple notices.

It is worth noting that HMRC clearly states that for underpayments for pay reference periods starting on or after 7 March 2014 to 25 May 2015, more than one notice may be issued where underpayments of more than £20,000 to an individual work or group of workers is identified.

It states further, “The policy intention is to impose larger penalties on those employers with the highest levels of underpayment”. Clearly as shown in this case, they will do this where they consider it relevant and the situation in HMRC’s view warrants it.

Should you have any further questions regarding NMW, please contact Julia Clutterbuck or any of our employment tax team.

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